Job shops are both a key customer segment for metal service centers and a predictor of the nation’s economic health overall. The Fabricators and Manufacturers Association, Rockford, Ill., has begun a new quarterly survey of job shop operators, summed up in its July Job Shop Consumption Report. "These small to midsized companies depend on demand from the consumer that translates into larger manufacturing orders. Their pace of business is a profoundly instructive means by which to understand the state of the economy from quarter to quarter," says FMA Economic Analyst Chris Kuehl.

FMA sent surveys to about 17,760 job shops across the U.S., receiving responses from 278. Three out of four respondents indicated that new-order activity was stable or improving. Of that group, about one-third said orders were on the rise. Only 25 percent reported a decrease in orders.

Looking at the data by company size, only the smallest companies—those with less than 20 employees—reported greater declines in new-order activity than gains. As a group, however, those small companies represent over half of the entire survey sample.

Job shops are operating at just 63.7 percent of capacity, according to FMA's survey--ell below normal industrial capacity utilization levels of 85 percent. In contrast, the rest of the industrial economy is averaging 79.3 percent. "A reading just short of 64 percent indicates there is a lot of room for growth in the future. That much slack capacity also mitigates against much inflation, as there will be no significant tightening in the industry for awhile," Kuehl says.

These lower utilization rates appear to have affected capital investment decisions. Capital spending surveys early in the year indicated that most companies were upbeat and planned to invest more in machinery and technology in 2013. But six months into the sluggish year, many job shops had adopted a "wait-and-see" attitude. Fifty-eight percent said they had elected to delay purchases of new equipment, and 34 percent said their capital investment was delayed indefinitely. Only 42 percent said their planned capital equipment purchases were on track. "There is still some deep concern about how robust the economic recovery will be," Kuehl says. "It is apparent that few companies are buying anything they can't immediately use. The pattern now is to be assured of a job before investing in either manpower or equipment."

What types of equipment do job shops say they currently need? Their capital equipment wish lists are dominated by six product categories: welding equipment and supplies, laser cutting equipment, plasma cutting machines, band and circular/cold saws, press brakes, and sheet/plate bending and forming equipment.

Costs for job shop operators saw moderate increases in the quarter. Fifty-seven percent reported that the prices they paid for steel and aluminum, and logistics services, were about the same as the previous quarter. But about 35 percent saw their metals prices increase, while only 7 percent saw declines. On the trucking side, 41 percent reported cost increases, while only 2 percent saw decreases.

Labor costs are on the increase at some job shops, as 23 percent reported increasing employment levels. Only 12 percent had decreased their workforce, compared to the previous quarter.

"The inaugural issue of this quarterly survey shows that the job shops are tracking very closely to other manufacturers, as the data from the Job Shop Consumption Report is consistent with the manufacturing sections of both the Purchasing Managers Index and the Credit Managers Index. The latest national data shows that industrial production is up about 3 percent," Kuehl notes.

["Job shops' pace of business is a profoundly instructive means by which to understand the state of the economy from quarter to quarter," Chris Kuehl, FMA Economic Analyst]

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